ACIT, Thanjavur V. Shri K.Kannan, Pattukkottai

ITA 370/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64252 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 6 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 23-08-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 01-03-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR S MOHARANA
• Assessee Lawyers: N DEVANATHAN
• Keywords: Depreciation
• Section: 44AD; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER I.T.A. NOS. 370 & 371/MDS/2011 ASSESSMENT YEARS: 2006-07 & 2007-08 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE I, THANJAVUR. (APPELLANT) V. SHRI K. KANNAN, CIVIL CONTRACTOR, MAIN ROAD, THIRUCHITRAMBLAM, PATTUKOTTAI - TK PAN : AGSPK9485H (RESPONDENT) APPELLANT BY : DR. S. MOHARANA, CIT-DR RESPONDENT BY : SHRI N. DEVANATHAN, ADVOC ATE DATE OF HEARING : 23.08.2012 DATE OF PRONOUNCEMENT : 06.09.2012 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THESE APPEALS FILED BY THE REVENUE, WHICH ARE D IRECTED AGAINST AN ORDER DATED 21.12.2010 OF COMMISSIONER OF INCOME TAX (APPEALS), TIRUCHIRAPALLI, FOR THE IMPUGNED ASSESSMENT YEARS, ITS GRIEVANCE IS THAT CIT(APPEALS) DIRECTED THE ASSESSING OFFICER TO ADOP T 5% OF GROSS CONTRACT RECEIPTS AS INCOME. AS PER THE REVENUE, E VERY ASSESSMENT 2 I.T.A. NOS.370 & 371/MDS/11 YEAR WAS DISTINCT AND SEPARATE AND RULE OF RES JUDI CATA DID NOT APPLY TO INCOME-TAX PROCEEDINGS. 2. FACTS APROPOS ARE THAT ASSESSEE, A CIVIL CONTRAC TOR, HAD FILED HIS RETURNS FOR THE IMPUGNED ASSESSMENT YEARS ON 21.9.2 006 AND 5.12.2007 ADMITTING INCOME OF ` 6,61,530/- AND ` 5,49,520/- RESPECTIVELY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSEE WAS ASKED TO PRODUCE BOOKS OF ACCOUNT, VOUCHERS AND INVOICES. IT SEEMS ASSESSEE COULD PRODUCE ONLY THE BOOKS OF ACCOUNT AND VOUCHERS IN R ESPECT OF MATERIALS. HOWEVER, AS PER THE A.O., THE VOUCHERS IN RESPECT O F MATERIALS WERE SELF- MADE ONES. ASSESSEE IT SEEMS DID NOT FURNISH PARTI CULARS REGARDING THE WORK-OUT OF WORK-IN-PROGRESS. ASSESSING OFFICER, THEREFORE, REJECTED THE BOOKS OF ACCOUNT PRODUCED BY THE ASSESSEE AND ESTIM ATED THE TOTAL INCOME FROM CONTRACT BUSINESS AT 8% OF THE GROSS CO NTRACT RECEIPTS OF ` 4,02,10,611/- AND ` 5,34,96,995/- FOR ASSESSMENT YEAR 2006-07 AND 2007-08 RESPECTIVELY. RESULT WAS THAT INCOME FROM CONTRACT BUSINESS WAS ESTIMATED AT ` 32,16,848/- FOR ASSESSMENT YEAR 2006-07 AND ` 42,79,760/- FOR ASSESSMENT YEAR 2007-08. 3. ASSESSEE FILED APPEALS BEFORE CIT(APPEALS). HIS ARGUMENT WAS THAT FOR ASSESSMENT YEAR 2005-06, THE ASSESSED INCO ME WAS 3.69% OF TURNOVER. AS PER THE ASSESSEE, THE TURNOVER FOR ASSESSMENT YE AR 2005- 06 WAS ` 2,81,65,923/- AND INCOME ASSESSED WAS ONLY ` 10,40,320/-. 3 I.T.A. NOS.370 & 371/MDS/11 ASSESSEE ALSO POINTED OUT THAT ASSESSMENT FOR ASSES SMENT YEAR 2005- 06 WAS COMPLETED UNDER SECTION 143(3) OF THE ACT. FOR ASSESSMENT YEAR 2004-05, AS PER THE ASSESSEE, THE ASSESSED INC OME WAS ONLY ` 1,89,830/- ON A TURNOVER OF ` 1,50,77,138/-. THUS, AS PER THE ASSESSEE, ITS INCOME FROM CONTRACT NEVER EXCEEDED 4% OF THE T URNOVER. ASSESSEE ALSO POINTED OUT PRACTICAL DIFFICULTIES TO MAINTAIN BILLS AND VOUCHERS IN THE NATURE OF ITS BUSINESS WHICH WAS DOING CIVIL WORKS FOR ROADS AND BRIDGES. 4. CIT(APPEALS) WAS APPRECIATIVE OF THE CONTENTIONS OF THE ASSESSEE. ACCORDING TO HIM, 8% RATE FIXED BY THE ASSESSING OF FICER WAS NOT PROPER AND HE DIRECTED THE ASSESSING OFFICER TO ESTIMATE P ROFITS OF ASSESSEE AT 5% OF THE GROSS RECEIPTS FOR BOTH THE YEARS. 5. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDER OF CIT(APPEALS), SUBMITTED THAT ASSESSEE COULD NOT PRO DUCE VOUCHERS FOR EXPENSES AND BOOKS WERE RIGHTLY REJECTED. ACCORDIN G TO HIM, CIRCUMSTANCES CALLED FOR AN ESTIMATED ASSESSMENT. A.O. WENT BY PROVISIONS OF SECTION 44AD WHEREIN 8% WAS FIXED BY THE LEGISLATURE TO BE AN APPROPRIATE RATE OF PROFIT ON GROSS RECEIPTS WHERE TURNOVER WAS LESS THAN ` 40 LAKHS. LEARNED D.R. SUBMITTED THAT EVEN THOUGH IN ASSESSEES CASE, TURNOVER EXCEEDED ` 40 LAKHS, SINCE THE BOOKS WERE REJECTED FOR VARIOUS DEFECTS, APPLICATION OF PROFIT RATE OF 8% WAS JUSTIFIED. 4 I.T.A. NOS.370 & 371/MDS/11 6. PER CONTRA, LEARNED A.R. STRONGLY SUPPORTED THE ORDER OF CIT(APPEALS). 7. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. IT IS CLEAR THAT THE TURNOVER OF THE ASSESSEE EXCEEDED ` 40 LAKHS PRESCRIBED UNDER SECTION 44AD OF THE ACT. OBVIOUSLY, THE SAID SECTION HAD NO APPLICATION. IT IS NOT DISPUTED THAT ASSESSEE HAD NOT FILED PROFIT & LOSS ACCOUNT, BALANCE SHEET FOR BOTH THE YEARS ALONG WIT H THE RETURNS OF INCOME. ASSESSEE HAD PRODUCED VOUCHERS, BUT SUCH V OUCHERS WERE FOUND TO BE DEFECTIVE BY THE ASSESSING OFFICER. WE CANNOT FAULT THE ASSESSING OFFICER FOR REJECTING THE BOOKS AND MAKIN G AN ESTIMATE OF PROFIT IN SUCH CIRCUMSTANCES. BUT, WHETHER ASSESSE E HAD CLAIMED ANY DEPRECIATION ON THE ASSETS EMPLOYED BY ITS BUSINESS , IS NOT CLEAR FROM THE ORDERS OF THE LOWER AUTHORITIES. NOTHING REGAR DING DEPRECIATION HAS BEEN MENTIONED EITHER BY THE ASSESSING OFFICER OR B Y THE CIT(APPEALS). DEPRECIATION BEING A STATUTORY ALLOWANCE, WILL ALWA YS BE AVAILABLE TO THE ASSESSEE. WE CANNOT SAY THAT THE 8% RATE APPLIED B Y THE A.O. ON THE GROSS RECEIPTS FROM CONTRACT FOR FIXING INCOME OF T HE ASSESSEE, WAS EXCESSIVE, BUT, NEVERTHELESS CLAIM OF DEPRECIATION HAD TO BE SEPARATELY ALLOWED. CIT(APPEALS) HAD SIMPLY SCALED DOWN SUCH ESTIMATE FOR A REASON THAT IN THE EARLIER ASSESSMENT YEAR 2005-06, 3.69% OF TURNOVER WAS CONSIDERED TO BE APPROPRIATE IN A SCRUTINY ASSE SSMENT. A.O. HAD 5 I.T.A. NOS.370 & 371/MDS/11 SPECIFICALLY STATED THAT INCOME WAS ESTIMATED BY HI M AFTER CONSIDERING ALL EXPENSES INCLUDING DEPRECIATION. BUT, IN OUR VIEW , DEPRECIATION HAS TO BE SEPARATELY CALCULATED AND ALLOWED IRRESPECTIVE O F THE FACT WHETHER INCOME IS ARRIVED AT ON AN ESTIMATED BASIS OR NOT. WE ARE, THEREFORE, OF THE OPINION THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, IT WOULD BE FAIR AND JUST IF THE INCOME OF THE ASSESSEE IS FIXE D AT 8% RATE OF GROSS CONTRACT RECEIPTS AS DONE BY THE ASSESSING OFFICER AND CLAIM OF DEPRECIATION ALLOWED THEREAFTER. HOWEVER, AFTER GR ANTING SUCH DEPRECIATION, IF THE INCOME GOES BELOW THE RETURNED INCOME, THEN THE A.O. SHALL ASSESS THE INCOME AT THE RETURNED LEVEL ITSELF. WITH THESE DIRECTIONS, THE APPEALS ARE DISPOSED OF. 8. THOUGH THE LEARNED A.R. PLACED RELIANCE ON A DEC ISION OF CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT V. M/S STANDARD ROADS IN I.T.A. NO. 564/MDS/09, WHICH WAS LATER CON FIRMED BY THE JURISDICTIONAL HIGH COURT ON REVENUES APPEAL, WE A RE OF THE OPINION THAT THIS DECISION WILL HAVE NO APPLICATION ON FACTS HER E FOR THE REASON THAT THERE THE ASSESSEE WAS A SUB-CONTRACTOR AND A FINDI NG WAS GIVEN BY THE TRIBUNAL CONSIDERING THE FACT THAT ASSESSEE WAS A S UB-CONTRACTOR WHOSE PROFIT RATES WERE GENERALLY LOWER THAN THE PRINCIPA L CONTRACTOR. 9. IN THE RESULT, BOTH THE APPEALS FILED BY THE REV ENUE ARE ALLOWED FOR STATISTICAL PURPOSES. 6 I.T.A. NOS.370 & 371/MDS/11 THE ORDER WAS PRONOUNCED IN THE COURT ON THURSDAY, THE SIXTH OF SEPTEMBER, 2012, AT CHENNAI. SD/- SD/- (CHALLA NAGENDRA PRASAD) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 6 TH SEPTEMBER, 2012. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A), TIRUCHIRAPPALLI (4) CIT-II, TIRUCHIRAPPALLI (5) D.R. (6) GUARD FILE